Sacramento, Calif., Jan. 6 - Following is the full text of Calfiornia Gov. Arnold Schwarzenegger's 2004 state of the state address:

Lt. Gov. Bustamante, Speaker Herb Wesson, President Pro Tem John Burton, Senate Republican Leader Jim Brulte, Assembly Republican Leader Kevin McCarthy, Speaker Designate Fabian Nunez, distinguished members of the Legislature, Chief Justice of California Ron George and associate justices, members of the Board of Equalization, my fellow constitutional officers, esteemed Cabinet secretaries, friends, my fellow Californians, and last but not the least, the first lady, the No. 1 partner, and the love of my life, Maria Shriver.

I changed my mind. I want to go back to acting. Ladies and gentlemen, that is not the truth at all.

People have said to me, "Arnold, isn't it a terrible burden being governor at a time of such crisis?"

I tell them, no, not at all. I love working for the people of California. It is better than being a movie star. It gives me great joy and satisfaction. I am honored to do this work for the people.

I am optimistic about our state.

The state of our state will soon be strong, because our people and our purpose are strong.

We have a new spirit, a new confidence. We have a new common cause in restoring California to greatness.

I saw greatness achieved only three days ago, when the rover "Spirit" landed on Mars. I want to congratulate the many talented scientists at NASA's Jet Propulsion Laboratory in Pasadena, Calif., who have demonstrated once again that we here in California are the launching pad for the extraordinary.

Now let us do the extraordinary. Tonight I will talk about the progress that we have made, the problems we have yet to overcome, and the path we will follow to overcome them.

I have no doubt that, together, Californians are more than a match for the challenges that we face.

I feel good because I believe we have made progress in rebuilding the people's trust in their government.

The first thing I did as governor was to repeal the tripling of the car tax.

This massive tax increase was a desperate act of a government out of control.

That could not be allowed to stand.

Repealing that illegal tax increase was the right thing to do.

During the campaign I promised that cities and counties would not bear the cost of the repeal.

It would be irresponsible for the state to take that money away from counties and cities.

That is why I acted to keep the money flowing for firefighters and police.

They did not raise the car tax, and they should not bear the burden of its rollback.

Together, we in this chamber repealed SB 60, which endangered the very integrity of the California driver's license.

Rescinding that law was the right thing to do. And I thank you for your bipartisan support.

Together, we put measures on the March ballot that, if passed by the people, will save our state from a June bankruptcy.

June is the month when billions of dollars in past loans come due and the financial house of cards built over the last half decade is set to collapse.

When individuals overspend themselves into trouble, financial counselors often tell them to consolidate their credit card balances so they can work their way out of trouble and also tear up their credit cards.

That is what our California Recovery Plan is all about.

We took the debt we inherited from the previous administration, the debt that threatens us with bankruptcy, and we rolled it into a $15 billion recovery bond.

Then we tore up the credit card.

We passed a balanced budget amendment.

And we created a rainy day fund for future hard times and emergencies.

Never again will government be allowed to spend money it doesn't have.

Never again will the state be allowed to borrow money to pay for its operating expenses.

And you in this room have done that for the people of California.

No one here got everything he or she wanted. Because we compromised. This, too, was the right thing to do. And I thank you and I congratulate you.

Now I ask you to join me in getting out the message that a "yes" vote on these measures on the March ballot is absolutely critical to our financial future.

The alternative is economic chaos.

In a bipartisan effort to help our citizens understand how important this bond is to California, I am proud to say that our state Controller, Steve Westly, a businessman and a financial leader, will be co-chairing with me the California Recovery Bond Committee. Thank you very much. Thank you.

With passage of these measures, we will have dodged the first bullet, the 2003-2004 budget deficit.

But the second bullet the second financial crisis has already left the barrel and is headed right at us.

I am talking about the 2004-2005 budget deficit - which is another staggering $15 billion.

The 2004-2005 budget, which begins July 1, is the one that we must now negotiate.

These huge budget deficits are aftershocks of past financial recklessness.

What happened is this.

Over the last five years, the state's income has increased 25 percent, but spending increased by 43 percent. This was irresponsible.

The fact of the matter is that we do not have a tax crisis; we do not have a budget crisis; we have a spending crisis.

We cannot tax our way out of this problem. More taxes will destroy what we are trying to save which is jobs and revenue.

Jobs bring revenue to the state, and revenue allows us to do the right things for education, for the environment, for the disabled, for the elderly and those in need.

A tax increase would be the final nail in California's financial coffin.

The people of California did not elect me to destroy jobs and businesses by raising taxes.

I will not make matters worse.

We have no choice but to cut spending, which is what caused this crisis in the first place.

These are cuts that will challenge us all.

But we cannot give what we do not have.

If we continue spending and don't make cuts, California will be bankrupt.

And a bankrupt California cannot provide services to anyone.

Members of the Legislature, you will receive my proposals in the days ahead.

These are proposals that leadership requires, economics demands and the public expects.

These cuts will not be easy but they will not be forever.

Let us move quickly to put the excesses of the past behind us and get on with the promise that beckons before us.

I would like to thank all those in the labor community who are working with us to do just that.

I would like to thank all of those in the education community who are working with us to allow the state to save money while still increasing per-pupil funding.

Everyone must play a part in this.

I respect the sovereignty of our Native American tribes, and I believe they also respect the economic situation that California faces. In the next couple of days, I will announce our negotiator who will work with the gaming tribes, so that California receives its fair share of gaming revenues.

Every cloud has a silver lining. The good news is that the spending crisis forces us to bring badly needed reform to government.

Although the transition will be difficult, in the end we will have a leaner, more efficient and more responsive state government.

A necessary place to start is education.

We must make better use of the money that we spend on our schools.

My proposal gets more money into the classroom and thus increases per-pupil funding.

First, we must give local schools the power to meet the specific needs of their own communities.

We can do this by consolidating $2 billion of categorical programs and cutting the strings to Sacramento.

This will give schools the freedom to spend the money as they not Sacramento best see fit to serve the children.

Second, school districts are forced to spend an average of 10 to 40 percent more than necessary on non-classroom services.

We must give local schools the freedom to be more cost efficient.

One way to do this is to repeal SB 1419, the law that prevents schools from contracting out services such as busing and maintenance.

This will free up more money for textbooks and other vital classroom needs.

In the past two years, college fees have increased over 40 percent.

We must end this boom-and-bust cycle of widely fluctuating fees with a predictable, capped fee policy for college students and their parents.

And we must limit the fee increases to no more than ten percent a year.

Like our kindergarten through grade 12 schools, our colleges and universities must also share the burden of the fiscal crisis, but we must work to expand the dream of college.

And we must not let the dream bypass our Central Valley.

That is why my budget is funding UC's tenth campus UC Merced.

We cannot afford waste and fraud in any department or agency.

Every governor proposes moving boxes around to reorganize government.

I don't want to move the boxes around; I want to blow them up.

The executive branch of this government is a mastodon frozen in time and about as responsive.

This is not the fault of our public servants but of the system.

We have multiple departments with overlapping responsibilities. I say consolidate them.

We have boards and commissions that serve no pressing public need. I say abolish them.

We have a state purchasing program that is archaic and expensive. I say modernize it.

I plan a total review of government its performance, its practices, its cost.

Some of the recommended actions, I will make by executive order. Some will require legislation. And some will need constitutional change.

I want your ideas and the more radical the better.

And to California's state employees, I want to thank you for your hard work under trying circumstances.

I also want your ideas, because I want to give you freedom to do your jobs in creative ways.

Now, in addition to restoring our state's finances and responsiveness, we must restore the state's business climate.

Creating and retaining jobs and the businesses that provide them must be a priority of this Legislature.

Jobs provide a solid foundation for families.

Jobs add revenues to the state budget.

Jobs give stability to our society.

Jobs. Jobs. Jobs. The more jobs the better.

I am going to become California's job czar. I'm going to travel the nation and the world to find those jobs.

I'm going to say, "Come to California. Come and do business here. Buy our fantastic products. Visit our special attractions. And hire our workers, who are the most productive in the world."

I am a salesman by nature. And now most of my energies will go into selling California. If you can sell, if I can sell tickets to my movies like "Red Sonja" or "Last Action Hero," you know I can sell just about anything. California is the easiest sell I've ever had.

But we must fix the state's business climate. And we must start with workers' compensation reform.

Our workers' comp costs are the highest in the nation nearly twice the national average.

California employers are bleeding red ink from the workers' comp system.

Our high costs are driving away jobs and businesses.

My proposal brings California's workers' comp standards and costs in line with the rest of the country.

To heal injured workers, it emphasizes the importance of health care and doctors rather than lawyers and judges.

It requires nationally recognized guidelines for permanent disability.

And it provides for innovative approaches.

I call on the Legislature to deliver real workers' comp reform to my desk by March 1. Modest reform is not enough.

If modest reform is all that lands on my desk, I am prepared to take my workers' comp solution directly to the people and I will put it on the ballot in November.

This year we also have the highest unemployment insurance costs in the nation. Our system is flat broke.

So that people could get their checks, last month I had to ask Washington for a billion dollar loan to bail us out.

Unemployment checks are an important part, an important safety net.

We must fix the system, and I need your help.

California's approach to energy is another barrier to jobs and economic growth.

We have a flawed regulatory structure.

Our businesses pay energy rates nearly twice as high as those in other western states.

In California, we have 13 different state energy agencies.

Something is wrong when it's easier to create energy agencies than power plants.

California's energy crisis is not over.

If we do not act now, California will face energy shortages as early as 2006.

To prevent this, we must reform the wholesale power market to attract new energy investment.

We must reform the retail market so that large customers can get competitive prices.

And we must renegotiate those high-priced electricity contracts that locked us into energy prices at the market's peak.

Closely connected to energy is the environment.

And while we are promoting jobs and promoting California, I'm also going to promote our commitment to the environment.

I'm going to encourage the building of a hydrogen highway to take us to the environmental future.

I'm going to encourage builders to build homes using partial solar power.

I'm going to create a Green Bank to make loans to retrofit old, energy-inefficient buildings.

I intend to show the world that economic growth and the environment can coexist.

And if you want to see it, then come to California.

During the campaign, I said that I would make sure that California got its fair share of federal tax dollars.

The congressional delegations of other states work together to bring home federal dollars, but the divisions in California have been too deep to do that effectively.

In December, however, we held a historic meeting in Palm Springs.

At a bipartisan retreat, the California congressional delegation and I agreed to put party and district boundaries aside and to speak with one united voice in Washington.

We agreed to fight side-by-side to get more federal tax money for homeland security, for criminal aliens, water resources, highways, and other needs.

Let me tell you another area where we must cooperate.

California's naval facilities, our air bases, our supply centers, our training commands have helped our nation produce the best trained and equipped military in the world.

I was in Baghdad last year. I met soldiers who call California home. I met soldiers who trained here and who served here.

California has a proud history of military support.

The Pentagon will make the next round of base closures in 2005. This could mean thousands of lost jobs to California.

These bases are important to national defense, and they are important to our steady economic recovery.

As a state, we will fight to keep our bases open.

We Californians need to work together at all levels of government. In the days and weeks ahead we have decisions coming at us that are the most difficult any legislator or governor faced in the history of our state.

We have decisions approaching that will inflame passions and potentially create division.

I want to tell you a story that relates to this.

During the terrible fires that burned California, I went to the funeral of Steven Rucker, the firefighter who died in the service of his fellow citizens.

He left behind a wonderful wife, two children and heartbroken parents.

After the service, I said to Steven's mother and father, "If there is anything I can do for you, please let me know."

His father looked at me for a few seconds, and grief in his eyes and tears coming down, he said, "Arnold, if you really want to do something in honor of my son, go to Sacramento and stop the politicians from fighting. Stop them from fighting. They're hurting the people and destroying our state."

Ladies and gentlemen, let us remember those words in the days and weeks ahead.

Let us remember the greater good of California.

I remain a great believer in the future of this state.

I did not seek this job to cut ... but to build.

I did not seek this job to preside over the decline of a dream but to renew it.

President Reagan said that empires were once defined by land mass and subjugated people, and military might.

But America, he said, is "an empire of ideals."

California, I believe, is an empire of hope and aspiration.

Never in the history have such big dreams come together in one place.

Never in the history has such an array of talent and technology converged at one time.

Never in the history has such a free and diverse community of people lived and worked under one political system.

This is a wonderful place California this empire of aspirations.

Great things can be done in California.

Ladies and gentlemen, let us help Californians do great things.

Thank you very much.